In the last year, the prices of gold and many other precious metals have soared, reaching record heights and prompting investors to rush to safe havens like the U.S. dollar and other government bonds. For stock market lovers, the last year has been devastating, with the S&P 500 dropping over 23% in 2019. But for those seeking precious metal exposure, the last 12 months have been glorious.
Record-Breaking Prices For Precious Metals
In 2018, the price of gold rose over 300%, reaching a record high of $1,535 per ounce. Other precious metals followed suit, with the price of a palladium-based coin (the most popular investment choice for those seeking to diversify) rising by over 600%, reaching a high of $3,360 per coin. In 2019, the precious metal prices continued their upward trajectory, with the price of gold hitting a new all-time high of $1,580 per ounce at the time of writing, and the cost of a palladium-based coin reaching a record high of $3,500.
All-Time-High Stocks And Bond Yields
In 2019, the U.S. stock market hit a new all-time high and the cost of a safe investment reached an all-time low. The S&P 500 stock index reached a record 2,926 on April 23, 2019, which is 125% higher than its previous all-time high set in December 2018. Similarly, the price of the U.S. dollar declined to a 30-year low against a basket of currencies.
Interest rates on long-term government bonds also reached record lows in 2019. On March 18, 2019, the U.S. Treasury auctioned 40-year bonds, with investors paying a record-breaking 1.95% for the privilege of lending the federal government money. Other long-term government bonds also enjoyed huge demand, with the 10-year note yielding just 0.63% on March 18, 2019. Safe haven bonds even attracted significant demand from emerging markets, with the 30-year bond of the Turkish lira reaching an all-time high of 9.5% on March 26, 2019.
What is driving this gold buying frenzy? First, let’s address the price of gold itself. One reason for the recent surge in gold prices is that the yellow metal is viewed as a safe haven for stock market traders, who fear a sudden drop in the value of their holdings. Second, there has been a rise in the number of people seeking to diversify away from the heavily-weighted U.S. dollar and the other world currencies that it is tethered to. A stronger U.S. dollar typically hurts the currencies of countries whose economies are closely tied to the greenback, causing foreign investors to sell their local currencies and buy gold as a haven for their hard-earned money. Third, the Federal Reserve has kept interest rates near-zero for years, which makes traditional investment vehicles like stocks and bonds relatively unattractive. Finally, investors have grown wary of volatile markets, with many avoiding high-risk ventures altogether.
Gold’s Performance In The News
News reports and social media have played an important role in spreading the latest information about gold and other precious metals in general. Here is a short list of some of the most prominent stories in 2019 that have helped to propel the price of gold to new record highs:
North Korea Threatens To End The Armistice
Tensions between the U.S. and North Korea have reached unprecedented levels, with both countries engaging in an economic war through competitive pricing and other forms of retaliation. The conflict is largely due to North Korea’s nuclear weapons development, which poses an existential threat to South Korea and other nearby nations. As a result of the growing hostility, the Armistice Agreement that ended the Korean War in 1953 is set to expire on June 30, 2019.
On April 23, 2019, North Korea’s foreign minister warned that his country may abrogate the Armistice Agreement due to the “hostile policy and practice” of the U.S. There is no question that U.S. sanctions and other forms of economic strangulation have prevented North Korea from thriving as a country, but this level of hostility is unprecedented. As a result of the mounting pressure, North Korea’s Supreme Leader has stated that his country is “reviewing the Armistice Agreement to see if there are instances that [it] can revoke.”
Ukraine-U.S. Trade War Escalates
The situation in Ukraine continues to deteriorate, with the U.S. and EU imposing increasingly harsh sanctions on the country in response to its political turmoil. On March 13, 2019, President Trump declared that “all options are on the table” when it comes to Ukraine, including a potential full-blown trade war. Since then, the risk of a trade war has become a widely-discussed topic, with many experts predicting that the worst is yet to come.
What Is The Biggest Threat To Gold?
Many experts and market commentators have weighed in on the biggest threat to the price of gold. At the top of the list is the U.S. dollar, with nearly 60% of respondents to a recent poll naming it as the most significant factor. Other respondents cited rising rates and international tensions as possible catalysts for a sharp fall in the price of gold. Looking at global economic conditions, more than 40% of respondents in the same survey named low trade volumes and the slowing global economy as potential trouble spots for the yellow metal.
What Trends Do You see In The Forecast?
In 2019, there will be an increasing number of stories about gold in the news, along with ever-increasing demand from both individuals and institutions. Looking at the bigger picture, the price of gold is expected to reach $2,000 per ounce by the end of the year.
While there will undoubtedly be ups and downs in the price of gold in the coming months and years, 2019 will be remembered as the year of the yellow metal.